GATX CORP

Segment profit is an internal performance measure used by the Chief Executive Officer to assess the profitability of each segment. Segment profit includes all revenues, expenses, pre-tax earnings from affiliates, and net gains on asset dispositions that are directly attributable to each segment. We allocate interest expense to the segments based on what we believe to be the appropriate risk-adjusted borrowing costs for each segment. Segment profit excludes selling, general and administrative expenses, income taxes, and certain other amounts not allocated to the segments.

RAIL NORTH AMERICA

Demand for existing railcars was solid for most railcar types and Rail North America continued to capitalize on current market conditions for both lease rates and lease terms. Utilization was 99.4% at the end of the quarter.

The following table shows Rail North America's segment results (in millions):

The following table shows the components of Rail North America's lease revenue (in millions):

Rail North America Fleet Data

The following table shows fleet activity and statistics for Rail North America railcars, excluding boxcars, for the quarter ended:

(2) The renewal success rate represents the percentage of railcars on expiring leases that were renewed with the existing lessee. The renewal success rate is an important metric because railcars returned by our customers may remain idle or incur additional maintenance and freight costs prior to being leased to new customers.

(3) Active railcars refers to the number of railcars on lease to customers. Changes in railcars on lease compared to prior quarters are impacted by the utilization of new railcars purchased from builders or in the secondary market and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.

(4) Average active railcars for the quarter is calculated using the number of active railcars at the end of each month.

As of March 31, 2024, leases for approximately 16,400 tank and freight cars and approximately 1,800 boxcars were scheduled to expire over the remainder of 2024. These amounts exclude railcars on leases expiring in 2024 that have already been renewed or assigned to a new lessee.

In 2022, we entered into a new long-term railcar supply agreement with a subsidiary of Trinity Industries, Inc. ("Trinity") to purchase 15,000 newly built railcars through 2028, with an option to order up to an additional 500 railcars each year from 2023 to 2028. The agreement enables us to order a broad mix of tank and freight cars. Trinity will deliver 6,000 tank cars (1,200 per year) from 2024 through 2028. The remaining 9,000 railcars, which can be a mix of freight and tank cars, will be ordered at a rate of 1,500 railcars per order year from 2023 to 2028 and delivered under a schedule to be determined. At March 31, 2024, 3,605 railcars have been ordered pursuant to the terms of the agreement, of which 1,600 railcars have been delivered.

In 2018, we amended a long-term supply agreement with Trinity to extend the term to December 2023, and we agreed to purchase 4,800 tank cars (1,200 per year) beginning in January 2020 and continuing through 2023. As of March 31, 2024, all 4,800 railcars have been ordered pursuant to the amended terms of the agreement, of which 4,621 railcars have been delivered. The remaining railcars covered under this agreement are expected to be delivered by the end of the second quarter of 2024.

In 2018, we entered into a multi-year railcar supply agreement with American Railcar Industries, Inc. ("ARI"), pursuant to which we agreed to purchase 7,650 newly built railcars. The order encompasses a mix of tank and freight cars to be delivered over a five-year period, beginning in April 2019 and ending in December 2023. ARI's railcar manufacturing business was acquired by a subsidiary of The Greenbrier Companies, Inc. on July 26, 2019, and such subsidiary assumed all of ARI's obligations under our long-term supply agreement. As of March 31, 2024, all 7,650 railcars have been ordered, of which 7,634 railcars have been delivered. All railcars covered under this agreement are expected to be delivered by the end of the second quarter of 2024.

Lease Price Index

Our Lease Price Index ("LPI") is an internally-generated business indicator that measures renewal activity for our North American railcar fleet, excluding boxcars. The average renewal lease rate change is reported as the percentage change between the average renewal lease rate and the average expiring lease rate. The average renewal lease term is reported in months and reflects the average renewal lease term in the LPI.

During the first quarter of 2024, the renewal rate change of the LPI was positive 33.0%, compared to positive 33.5% in the prior quarter, and positive 28.3% in the first quarter of 2023. Lease terms on renewals for railcars in the LPI averaged 64 months in the current quarter, compared to 65 months in the prior quarter, and 55 months in the first quarter of 2023.

The following table shows fleet activity and statistics for Rail North America boxcars for the quarter ended:

(1) Utilization is calculated as the number of boxcars on lease as a percentage of total boxcars in the fleet.

(2) Active boxcars refers to the number boxcars on lease to customers. Changes in boxcars on lease compared to prior quarters are impacted by the utilization of new boxcars purchased from builders or in the secondary market and the disposition of boxcars that were sold or scrapped, as well as the fleet utilization rate.

(3) Average active boxcars is calculated using the number of active boxcars at the end of each month.

In the three months ended March 31, 2024, segment profit of $90.3 million decreased 5.1% compared to $95.2 million for the same period in the prior year. The decrease was primarily due to lower net gain on asset dispositions and higher interest expense, partially offset by higher lease revenue. The amount and timing of disposition gains is dependent on a number of factors and may vary materially from period to period.

In the three months ended March 31, 2024, lease revenue increased $21.4 million, or 9.9%, driven by higher lease rates and more railcars on lease. Other revenue increased $4.7 million due to higher repair revenue.

In the three months ended March 31, 2024, maintenance expense increased $6.0 million, driven by higher costs of repairs and more regulatory compliance events. Depreciation expense decreased $0.4 million due to a change in the useful lives of certain railcars, partially offset by the timing of new railcar investments and dispositions. Other operating expense decreased $0.3 million primarily due to lower switching and freight costs.

In the three months ended March 31, 2024, net gain on asset dispositions decreased $13.6 million due to fewer railcars sold, lower gains on railcars converted to finance leases, and lower net scrapping gains. The amount and timing of disposition gains is dependent on a number of factors and may vary materially from period to period. Net interest expense increased $11.0 million, driven by a higher average interest rate and a higher average debt balance.

Investment Volume

During the three months ended March 31, 2024, investment volume was $321.7 million compared to $296.5 million in the same period in 2023. We acquired 1,073 newly built railcars and purchased 822 railcars in the secondary market in the three months ended March 31, 2024, compared to 781 newly built railcars and 1,021 railcars in the secondary market in the same period in 2023.

Our investment volume is predominantly composed of acquired railcars, but also includes certain capitalized repairs and improvements to owned railcars and our maintenance facilities. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of railcars purchased, which may include tank cars and freight cars, as well as newly manufactured railcars or those purchased in the secondary market.

RAIL INTERNATIONAL

Rail International, composed primarily of GATX Rail Europe ("GRE"), produced solid operating results in the first three months of 2024 and continued to grow its fleet. GRE experienced renewal lease rate increases for most railcar types in the period. Utilization was 95.3% at the end of the quarter.

Our rail business in India ("Rail India") increased its fleet size in the first three months of 2024 and continued to focus on investment opportunities, diversification of its fleet, and developing relationships with customers, suppliers and the Indian Railways. Demand for railcars in India remained robust, driven by continued growth in the economy and infrastructure development. Utilization was 100.0% at the end of the quarter.

In the first quarter of 2023, we sold Rail Russia and recorded a gain of $0.3 million upon completion of the sale.

The following table shows Rail International's segment results (in millions):

GRE Fleet Data

The following table shows fleet activity and statistics for GRE railcars for the quarter ended:

(2) Active railcars refers to the number of railcars on lease to customers. Changes in railcars on lease compared to prior quarters are impacted by the utilization of newly built railcars, railcars purchased in the secondary market, and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.

(3) Average active railcars for the quarter is calculated using the number of active railcars at the end of each month.

The decline in GRE's fleet utilization was primarily due to weakness in the intermodal market. At March 31, 2024, GRE owned 2,159 intermodal railcars. As of March 31, 2024, leases for approximately 7,647 railcars were scheduled to expire over the remainder of 2024. This amount excludes railcars on leases expiring in 2024 that have already been renewed or assigned to a new lessee.

Rail India Fleet Data

The following table shows fleet activity and statistics for Rail India railcars for the quarter ended:

(2) Active railcars refers to the number of railcars on lease to customers. Changes in railcars on lease compared to prior quarters are impacted by the utilization of newly built railcars and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.

(3) Average active railcars for the quarter is calculated using the number of active railcars at the end of each month.

Foreign Currency

Rail International's reported results of operations are impacted by fluctuations in the exchange rates of the U.S. dollar versus the foreign currencies in which it conducts business, primarily the euro. In the three months ended March 31, 2024, fluctuations in the value of the euro, relative to the U.S. dollar, positively impacted lease revenue by approximately $1.0 million and negatively impacted segment profit, excluding other income (expense), by approximately $0.1 million compared to the same period in 2023.

In the three months ended March 31, 2024, segment profit of $28.8 million increased 22.6% compared to $23.5 million for the same period in the prior year. Segment profit in 2023 included a $0.3 million disposition gain recorded as a result of the decision to exit the Rail Russia business. Excluding these items, results for Rail International were $5.6 million higher compared to the same period in the prior year. The increase was primarily due to more railcars on lease and higher lease rates at both GRE and Rail India, partially offset by higher interest and maintenance expense at GRE.

In the three months ended March 31, 2024, lease revenue increased $10.2 million, or 14.5%, due to more railcars on lease and higher lease rates at GRE and Rail India and the impact of foreign exchange rates. Other revenue increased $0.2 million, driven by higher repair revenue.

In the three months ended March 31, 2024, maintenance expense increased $1.6 million, primarily due to more repairs performed, higher costs for repairs, higher wheelset costs, and the impact of foreign exchange rates. Depreciation expense increased $3.2 million, due the impact of new railcars added to the fleet.

In the three months ended March 31, 2024, net gain on asset dispositions increased $0.5 million, driven by higher net scrapping gains due to more railcars scrapped at a higher scrap price per ton. Net interest expense increased $4.2 million, due to a higher average debt balance and a higher average interest rate. Other income (expense) was favorable by $4.7 million, driven by the positive impact of changes in foreign exchange rates, primarily euro-zloty fluctuations.

Investment Volume

During the three months ended March 31, 2024, investment volume was $49.9 million compared to $81.1 million in the same period in 2023. In the three months ended March 31, 2024, GRE acquired 322 newly built railcars compared to 502 newly built railcars for the same period in 2023, and Rail India acquired 696 newly built railcars in the current year compared to 479 newly built railcars for the same period in 2023.

Our investment volume is predominantly composed of acquired railcars, but also includes certain capitalized repairs and improvements to owned railcars. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of the various car types acquired, as well as fluctuations in the exchange rates of the foreign currencies in which Rail International conducts business.

ENGINE LEASING

As disclosed previously, as of December 31, 2023, we have sold all of our marine assets and no longer have any marine operations. As a result, we have changed the name of this business segment from Portfolio Management to Engine Leasing to reflect the prospective operations of the segment.

Engine Leasing's segment profit is attributable primarily to income from the RRPF affiliates, a group of 50% owned domestic and foreign joint ventures with Rolls-Royce, a leading manufacturer of commercial aircraft jet engines. Segment profit included earnings from the RRPF affiliates of $23.7 million for the three months ended March 31, 2024, compared to $28.0 million for the same periods in 2023. The operating environment for the RRPF affiliates was robust, and demand for international air passenger travel remained strong.

Engine Leasing also includes GEL, our wholly owned entity that invests directly in aircraft spare engines. As of March 31, 2024, GEL owned 29 aircraft spare engines, with 14 on long-term leases with airline customers and 15 that are employed in an engine capacity agreement with Rolls-Royce for use in its engine maintenance programs. All engines at GEL are managed by the RRPF affiliates, for which we paid them a fee of $0.6 million for the three months ended March 31, 2024 and $0.5 million for the three months ended March 31, 2023.

The following table shows Engine Leasing’s segment results (in millions):

The following table shows the net book values of Engine Leasing's assets (in millions):

RRPF Affiliates' Portfolio Data

The following table shows portfolio activity and statistics for the RRPF affiliates' aircraft spare engines for the quarter ended:

(1) Utilization is calculated as the number of engines on lease as a percentage of total engines in the fleet.

(2) Average leased engines is calculated using the number of leased engines at the end of each month.

GEL Portfolio Data

The following table shows portfolio activity for GEL's aircraft spare engines for the quarter ended:

In the three months ended March 31, 2024, segment profit was $25.7 million, compared to segment profit of $28.3 million for the same period in the prior year. Segment profit included $0.6 million of gains in 2024 and $1.6 million of losses in 2023 associated with the Specialized Gas Vessels. Excluding the impact of these items, results for Engine Leasing were $4.8 million lower than 2023. Lower earnings at the RRPF affiliates, resulting from lower remarketing income, was partially offset by higher earnings from GEL operations.

In the three months ended March 31, 2024, lease revenue was comparable to the same period in the prior year. Non-dedicated engine revenue increased $8.7 million due to aircraft spare engines acquired in 2023 and utilized in the engine capacity agreement with Rolls-Royce. Marine operating revenue decreased $3.5 million, driven by the final sales of the Specialized Gas Vessels in 2023.

In the three months ended March 31, 2024, marine operating expense decreased $2.0 million, due to the sale of the Specialized Gas Vessels in 2023. Depreciation expense increased $3.0 million, due to aircraft spare engines acquired in 2023.

In the three months ended March 31, 2024, net gain (loss) on asset dispositions was favorable by $2.1 million, driven by the absence of losses recorded in 2023 and the gain recorded in 2024 related to post-closing adjustments on the sales of the Specialized Gas Vessels.

In the three months ended March 31, 2024, income from our share of affiliates' earnings decreased $4.3 million, driven by lower remarketing income, partially offset by higher income from operations.

OTHER

Other comprises our Trifleet business, as well as selling, general and administrative expenses ("SG&A"), unallocated interest expense, miscellaneous income and expense not directly associated with the reporting segments, and certain eliminations.

The following table shows components of Other (in millions):

Trifleet Summary

The tank container leasing market continued to experience softer demand across certain regions in the first quarter of 2024. However, Trifleet continued to find opportunities to place its tank containers with customers. Utilization was 85.5% at the end of the quarter.

Trifleet Tank Container Data

The following table shows fleet statistics for Trifleet's tank containers for the quarter ended:

(1) Utilization is calculated as the number of tank containers on lease as a percentage of total tank containers in the fleet.

SG&A, Unallocated Interest and Other

SG&A increased $5.5 million for the three months ended March 31, 2024 compared to the same period in the prior year, driven by higher employee-related expenses, including higher share-based compensation expense.

Unallocated interest income (the difference between external interest expense and interest expense allocated to the reporting segments) in any year is affected by our consolidated leverage position, the timing of debt issuances and investing activities, and intercompany allocations.

Consolidated Income Taxes

See "Note 9. Income Taxes" in Part I, Item 1 of this Quarterly Report on Form 10-Q.